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Nov 28, 2016

Overtime Pay Expansion Blocked

Featuring Adam Reiss

The new Fair Labor Standards Act (“FLSA”), a policy that would have given more white-collar workers overtime pay starting Dec. 1st, was blocked nationwide by a federal judge on Tuesday, November 22nd. This ruling prevents the Department of Labor from implementing the proposed changes while the regulation's legality is examined in more detail by the court.

Employers that have not yet implemented any changes to comply with this rule: the injunction removes the immediate requirement for any action and presents the possibility that changes may not be required, pending the final decision on the rule.

Employers that have already commenced implementing changes to comply with this rule: if you have informed employees their salaries will be increased or that they will be converted to non-exempt status on December 1, 2016 this recent development could pose a challenging situation. It is strongly advised employers speak with their advisor before making any further modifications to employee compensation plans.

The injunction will remain in effect while the case is decided; our Not-For-Profit Practice will provide updates and more information as it becomes available.

A brief background on the new Fair Labor Standards Act:
The policy requires employers to pay time-and-a-half to their employees who work more than 40 hours a week and earn less than $47,476 a year (raised from $23,660, thus doubling the salary cap). Employees subject to these changes include full-time executive, administrative, and professional workers, extending overtime protections to about four-million full-time salaried workers. Currently just 7 percent of these workers are protected by the FLSA, compared with 62 percent in 1975. The policy also includes a provision to readjust the pay rate every three years to reflect changes in average wages.

Leading up to the recent injunction, 21 states and dozens of business groups sued, due to the increase in government costs. The rule could create budgetary constraints and force layoffs or reduction in working hours as a result of the public and private sectors potentially spending millions more in salaries. 

According to those that disagree, the policy:
  • Fails to consider regional salary and economic differences in setting the nationwide base pay rate;
  • Doesn’t consider whether all workers at this pay level should qualify as white-collar employees;
  • Doesn’t make exceptions for small municipalities or businesses that will have a hard time paying higher salaries; and
  • Usurps Congress’s exclusive authority to set minimum wages and ignores the required public comment period before imposing its new rule.
For more information please contact Not-For-Profit Practice Leader Adam Reiss.